The compensation paradox

Hiring good people and retaining them is very difficult. Most companies – and many employees – believe that the only way to do this is by continually increasing their compensation. For many companies, using salary to compete for top talent is often a losing battle. Talented employees often look for several other qualities in jobs when deciding whether to make a move.

But this seldom works. The gratitude that you think you’ve earned after giving a hike or a bonus fizzles out very quickly. Within a matter of weeks the employee begins to take his new compensation for granted.

Sadly companies take too long to realize that this strategy isn’t working; revenues continue to fall, but motivation never scales the expected height. This is a train that’s eventually going to get nowhere.

Why not try to do the exact opposite: instead of slightly over compensating your employees, slightly under-compensate them. If this looks mad, then let me explain why this might work.

Assume that I’m the CEO, and let’s see it from my perspective. I see the under-compensated employee as offering me more value. I’m therefore always a little more cognizant of his concerns and requirements; and my sense of fair play forces me to offer him the more challenging or lucrative projects. So he usually ends up getting much better projects and learning the harder part of the business. This experience, over time, makes him progressively more worthy and valuable.

It’s just the opposite with someone who is over-compensated. I know that he’s giving me relatively less value, and, if I’m required to cut down my numbers on some project, his is likely to be the first head on the chopping block.

There is now ample evidence that salary is just one part of the toolkit that companies have, to retain their best and brightest. It’s giving employees tremendous freedom, transparency when it comes to sharing business knowledge and involvement in interesting projects that works more in the long run – it is these factors that really make an employee feel more valued and make his work more meaningful.

We see this happening ever so often. Last year some of our smartest youngsters went away when bigger companies enticed them with bigger compensation and bigger promises; but a year later some of them are desperately keen to return – because they find that they were either on the bench, or forced to handle the legacy support of a big-paying customer with no new learning opportunity on the anvil. They eventually figured out that in the first half, or first third, of their career a bigger opportunity and exposure is far more important than bigger money.

This probably happens in many other companies: it is the under-compensated employee who is often picked for the more difficult or challenging tasks … and, over time, it is this under-compensated employee who goes on to become the real winner or muqaddar ka sikandar.